"All Things Edmonds" Blog

OK, OK.... we're still in an economic funk. Housing is down; jobs are hard to find; gas prices are high.

But when it comes to real estate prices in the Edmonds WA Bowl area (and greater Puget Sound region as well), we have to keep a long view of what the recent "housing bubble" has done to prices. Certain markets are down. But some are healthy. I wrote a blog about the Edmonds WA real estate market and how healthy we actually are in the single family house sector, but not so much in the condo sector.

Most everyone has heard of the Case-Shiller Home Price Index which gets much publicity monthly. It tracks home prices both nationally and regionally compared to previous months or years. And it's been consistently indicating downward pricing pressures. But it's also important to consider long-term views on housing. The New York Times recently put together a chart showing housing prices for 20 major cities. The important perspective they make is this: yes, we're down over the past several years, but home prices are still up around 33% for the decade (since 2000).

In the above chart, Seattle's line is blue. The national average is black (the other lines are the other major cities around the U.S.) Click on the NY Times link above to play with the chart. But you'll note that the greater Seattle market didn't rise - or fall - as much as other markets nationally. It's the silver lining set against the dreary cloud-covered region we call home.

But it's also a reminder that, like all investments, long term toirtoises often out-perform the short term hares of the world. So don't fret if you know you're in it for the long haul because the Edmonds Bowl real estate in Edmonds WA is doing fine (generally). :)

Keep the chin up!

Casey
Edmonds, WA

ps. Wanna know where home prices are below 2000 levels? Detroit (-32.9%), Cleveland (-3.2%), Las Vegas (-2.8%), Atlanta (-1.6%).

Here's an interesting story out of Florida where a defense attorney and sheriff's deputies walked into a Bank of America branch to seize property from the bank.

This is obviously a case of bad bureaucratic management and I don't think it adds much to the idea that those who aren't making payments are being treated unfairly. But I thought it a nice start to the week.

Health Care Reform's Impact on Real Estate:
Fact or Fiction?

A little known clause in the health care bill passed earlier this year includes a little-known provision for a 3.8% excise tax on real estate sales. I've received emails and read articles on the internet about this slight of hand by those on the Hill.  But rather than take a position one way or the other - because the sky is neither falling nor are we witnessing heaven on earth - on health care reform, let's take a closer and try to answer the question of the day:  Does the new health care law impose a 3.8% "sales tax" on real estate sales?  For most Americans, the answer is no. However, some exceptions do apply.

Irrespective of your views on taxes, Democrats, rich people, sick people, health care or UFO's, here's a quick look at who might "qualify" under this little known provision and what it means in terms of real dollars per real estate transaction.

First, it's worth noting that all homeowners are allowed what's called a homestead exemption which exempts the first $500,000 in profits from the sale of your primary residence ($250,000 for single people) from any federal capital gains tax.  So, if you sell your primary residence at a net profit of $400,000 you'll owe nothing in capital gains (single people would owe on the $150,000 above their limit).  There are other guidelines, but for the purposes of this blog post, this is sufficient background.  And the new Medicare 3.8% tax doesn't apply to anything below these already-existing thresholds.  Even so, the new tax applies to a very small minority of sales (if you're having trouble sleeping, start reading on page 33 of the the health care bill). 

It shouldn't surprise any of us that such a major piece of legislation actually costs money.  And there are two ways to pay for it: raise taxes or cut spending. And we know how good Congress is at the latter.  Whether you think it's a good thing or not, the Tax Foundation estimates that this new tax will affect just the top 2% of income earners in the country.  In the same report, they estimate that "as a result of the health care reform, the top 1 percent (of earners) would go from earning 14.7 percent of post-redistribution income to around 14.35 percent of post-redistribution income."   That's a far cry from the "nightmare" foreseen in the emails I've received from anti-health care/anti-Democrat folks.

The bottom line? Very few home-sellers will be affected by the 3.8% excise tax.  Emails including references portraying otherwise is, in my opinion, a disservice to everyone -- whether left or right leaning.  But, perhaps, you're one of the lucky few who might be eligible for the 3.8% tax. Here are some scenarios where the tax would apply that you might want to avoid (courtesy of FactCheck.org):

• A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
• An "empty nester" couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the half-million-dollar exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.

So, unless you're selling something for over $500,000 in profit, you probably have no need to worry.  Unless, of course, there's a UFO over head.

Casey
Edmonds, WA

What is RESPA?
The Real Estate Settlement Procedures Act (RESPA) guides those in the residential lending world on how to disclose important facts about the costs of buying a home.  HUD is requiring that loan originators provide borrowers with a standard Good Faith Estimate that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a new "HUD-1" settlement statement. New RESPA regulations were published November 17, 2008 and are scheduled to take full effect on January 1, 2010. The "New RESPA Rule FAQs" were comprised from industry questions and are posted to facilitate implementation of these new requirements.

Rather than try and explain it all hear, I'm providing a link to HUD's website where you can read all the information for yourself.

Casey

If you're thinking about how best to time the market to get the best price on a home, here's a thought: DON'T.

The overwhelming consensus is that our interest rates of 5% or so won't - and can't - last forever. They WILL go up. Once the economy rebounds and people starting getting their jobs back, growth will increase putting pressures on inflation, which increases interest rates. 

Here's a simple 3-minute cartoon video explanation as to how increased interest rates will affect your buying power.

On Wednesday, Nov 4, the U.S. voted 98-0 to pass the expanded Homebuyer Tax Credit and yesterday, the House voted 403-12 in favor of it as well. The extended and expanded bill now goes to President Obama for his signature.  Among the bill's provisions, it will:

• extend the $8,000 first time homebuyer tax credit through April 30;
• create an additional $6,500 tax credit for current homeowners who have lived in their property for 5 consecutive years out of the past 8 (they must sell that home too);
• require proper documentation (aka proof) that they purchased a home on their federal tax filings.

For details, check out this summary of the tax credit changes on my Google Docs.

I've also posted a FAQ summarizing homebuyer tax credit changes for those who have further questions.

The United States Senate has passed the home buyer tax credit extension (and expansion) 98-0 and has sent it to the House of Representatives where House Majority Leader Steny Hoyer has said it will likely get passed and sent to President Obama for signature. 

I thought this would be a good opportunity to share a cartoon that was developed to explain how the tax credit works. The cartoon states that the credit expires at the end of November, but we'll go on the assumption that it'll actually get extended.

EDMONDS, WA -- As of today, November 4, it looks like we are seeing some real momentum with an extension and expansion of the home buyer tax credit. First, and simply, it looks like the $8,000 first-time home buyer tax credit will get extended until some time in the spring of 2010.   What's unclear right now is how much, if any, type of tax credit will be provided for current homeowners who might want to "buy up."  Several bills have been introduced in both the House and Senate and it's still unclear as to which, if any, will win out.

One thing I have seen that I do not like: there are some versions of expansion bills that require homeowners to have lived in their homes for a minimum of 5 years to qualify for the expanded (non-first time home buyer) credit. Why cut out the others? It seems wholly unfair to me to leave out those who would like to move up but aren't afforded the opportunity to get a tax break (in this economy no less!) because they have lived in their homes for "only" 4 or 3 or 2 years. Even the homestead law allows them to take tax free capital gains on their homes if they've lived in them for just 3 of the past 5 years.

Rather than add to the confusion, you can read for yourself the myriad of news reports on the various bills and where they stand. Keep in mind what they say about laws and sausages: two things you never really want to see made.

News link updates on the home buyer tax credit:

• UPI story reporting expansion to home buyers through June 2010
• Washington Post article on $6,500 credit for existing homeowners (5+ years only)
• CNBC article questioning the tax extension
• Politico.com story on Senate Banking Chair Dodd in support of extension/expansion
• Seattle P-I report on the extension/expansion
• WSJ Q&A on the extension and expansion of the tax credit
• Bloomberg article that quotes many lawmakers

Happy reading!

Casey